Arizonans shouldn't be allowed to vote on tax cuts, lawsuit says

PHOENIX — An organization that pushes for lower taxes and less government regulation is trying to deny Arizonans the option to approve or veto the $1.9 billion in tax cuts enacted last month by the Republican-controlled Legislature.

The dispute is over three separate measures approved by lawmakers which, taken in total, will enact tax cuts that largely benefit the most wealthy.

In a new lawsuit, the Arizona Free Enterprise Club contends the right of Arizonans to second-guess decisions of the Legislature does not extend to measures “for the support and maintenance of the departments of state government and state institutions.”

Attorney Thomas Basile, representing the club and its president, Scot Mussi, does not contend that successful petition drives would leave the state without the revenues needed to run the government. In fact, if the referenda on the three measures succeed and the tax cuts are canceled, that would leave Arizona government with a lot more money than needed to cover anticipated expenses.

But he is arguing that’s legally irrelevant. Basile urges a Maricopa County judge to interpret the constitutional right of people to refer measures to the ballot as precluding a public vote on anything dealing with taxes.

Mussi, in a prepared statement, defended that interpretation.

“All three bills directly provide for the support and maintenance of the state, were key aspects of the state’s budget, and therefore are not referrable” to the voters, he said.

Basile and Mussi want Superior Court Judge Katherine Cooper to not only declare the three ballot measures illegal, but also to block Secretary of State Katie Hobbs from accepting any petitions gathered and putting the measures on the ballot.

His arguments are going to get a fight from the Invest in Arizona Committee, which is working to get the measures on the ballot.

Its attorney, Roopali Desai, said Mussi and Basile are misreading the constitutional restrictions.

“Understandably, if you have the Legislature imposing a tax for the purpose of state operations … then it makes good policy sense that you would not be able to refer that,” Desai said in an interview.

“It’s a completely different fact pattern when you have the elimination or reduction of a tax, which obviously means you cannot make the argument that, ‘Oh, that tax was necessary to operate the state,’” Desai continued.

“Our position is by eliminating these taxes, it’s really going to create hardship, not just for education but for many other things.”

At stake

One of the three legislative actions scraps the current graduated income tax rates of from 2.59% to 4.5% over the next three years in favor of a flat 2.5% rate.

A second seeks to limit the impact of Proposition 208, which voters approved in November 2020, imposing a 3.5% surcharge on taxable incomes above $250,000 a year for individuals and $500,000 for married couples.

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The legislative measure sets an absolute limit of 4.5% on all income taxes, including that 3.5% surcharge.

And a third creates a method for the owners of small businesses to escape the surcharge by creating an entirely new tax category for them.

Backers need 118,823 valid signatures on each of the three measures by Sept. 28 to place them on “hold” until the November 2022 general election. That’s when voters would get the last word on whether to ratify or reject each.

Mussi said he rejects any contention that, in seeking to block a public vote on the tax cuts, he is denying voters a say in the process.

“This tax reform package wasn’t adopted by unelected bureaucrats,” he told Capitol Media Services.

“It was voted on and approved by 90 lawmakers duly elected by the people of the state of Arizona,” Mussi continued. “The tax package was signed by a governor duly elected by the people of the state of Arizona.”

In arguing that the measures can’t be referred to voters, Basile relies on a 1992 ruling by the state Court of Appeals. In that case, the judges, relying on the same constitutional provision he is using here, quashed a referendum to overturn a decision by Greenlee County supervisors to impose a half-cent sales tax.

Desai, however, said that precedent provides no help to Basile because the facts are different. The county was seeking to increase taxes to keep government operating, not to cut them.

That point was underlined by appellate Judge Joseph Livermore, who wrote the court’s opinion.

“Permitting referenda on support measures would allow a small percentage of the electorate, in Arizona 5%, effectively to prevent the operation of government,” he wrote, thwarting until at least the next election the decision of a majority of the supervisors to fund “necessary government programs.”

“The functioning of government can be as effectively damaged by the inability to acquire funds as by the inability to spend them,” Livermore wrote.

Desai said there’s another potential flaw in the litigation: that it’s premature.

She said the question of whether the measures can be placed on the ballot should not be addressed until after the petitions are turned in and after the secretary of state has verified there are enough signatures.

Desai said she doubts that courts would move to block the secretary of state from accepting the petitions before it’s even known whether there will be enough names on them to force an election.

No date has been set for a hearing.